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CohnReznick Unveils New Report: “The Community Reinvestment Act and Its Effect on Housing Tax Credit Pricing”


For years, investors have known that a two-tier pricing market exists when it comes to the prices that they pay for federal low-income housing tax credit (LIHTC) investments1.

In a handful of metro areas like New York City and San Francisco, where multiple banks have an obligation to invest under the Community Reinvestment Act (“CRA”) and where bank deposits are at disproportionately high levels, demand and pricing for LIHTCs are high. In smaller towns like Geneva, NY, where just a few major banks have CRA obligations, demand and pricing for LIHTCs are considerably lower. The effect is so strong that, in the top CRA markets, LIHTC prices fell only slightly during the financial crisis. In the rest of the country, some LIHTC developments were unable to find investors at any price.

A new report from CohnReznick, “The Community Reinvestment Act and Its Effect on Housing Tax Credit Pricing,” tells the story with objective data and suggests that fairly modest changes in the CRA’s regulations could close some of the gap in pricing between “CRA-hot” and “CRA-not” markets.

With a handful of exceptions, LIHTC pricing is significantly higher in zip codes where one or more top 20 U.S. banks operate branches, according to the study being released by CohnReznick.

CohnReznick gathered data on the prices paid by investors for LIHTCs for more than 12,000 affordable housing properties. CohnReznick then placed these properties onto a data map, together with the locations of the 35,479 branches operated by the top 20 commercial banks, using information from the FDIC.

The data show a clear difference between LIHTC prices in areas with the highest concentration of bank branches and deposits– and therefore the highest and most concentrated CRA requirements. In 2006, when overall demand for LIHTC was at its then highest level, the difference in tax credit pricing from top to bottom was approximately 15 cents for a dollar of LIHTC. However, during the financial crisis, the total volume of equity investment in LIHTC fell from about $9 billion in 2006 to approximately $4 billion in 2009. Banks were almost the only LIHTC investors left and they focused their LIHTC investment dollars on properties located in areas with the highest “CRA value.” According to the study, affordable housing developments in the top CRA markets attracted LIHTC equity for 24 cents more, on average, than projects in markets too small, or not profitable enough, to attract the major banks that dominate the LIHTC market. Some LIHTC developments in markets without much CRA demand would not have been able to find tax equity investors at any price if not for federal stimulus programs like the Tax Credit Exchange Program.

The split between top CRA markets and the rest of the country became even clearer when CohnReznick compared individual real estate markets. For example, investors paid a median price of 68 cents for a dollar of LIHTC in Indianapolis in 2008 and 2009. At the same time, in San Francisco investors paid a median price of $1.06 - a 38-cent premium.

Of course, housing credit projects in San Francisco generally report stronger real estate performance than cities like Indianapolis. However, the differences in the banking profile of the two cities play a larger role in differential pricing, according to the study. San Francisco’s banking profile would make it particularly valuable for top banks eager to comply with CRA. The top 20 U.S. banks operate more than 1,000 branches in San Francisco, three times as many as in Indianapolis. San Francisco also has the third highest volume of bank deposits per capita in the country compared to Indianapolis, which came in 35th.  Since the performance of housing credit projects in Indianapolis is only marginally lower, the study concludes that the concentration of major bank activity, and the difference in deposit volume levels, plays a larger role in the tax credit gap in these cities and elsewhere in the U.S.

The nation’s housing needs do not always match up with the places where the national banks operate branches with the highest volume of deposits. “Bank examiners should be able to take note of the mismatch,” says Fred Copeman, Principal with CohnReznick, "and invest in areas outside their assessment areas that have critical housing needs."

CohnReznick recommends the following:

  • Investment test objectives should be set in a way that recognizes each state’s most critical housing needs and that screens out deposits from customers located in other areas.
  • Bank examiners should be free to take note of the impact of premium pricing on underwriting. If the only tax credit project in a given area has already attracted offers at $1 or more per $1 of credit, banks should have the option of investing in broader statewide or regional areas that include their CRA assessment areas.
  • Banks regulators should require that CRA investment test reporting be provided in a form that facilitates data analysis for many different purposes.


For more information, please visit the CohnReznick affordable housing webpage and contact:

Beth Mullen, CPA, National Director, Affordable Housing Industry and Office Managing Partner - Sacramento, at 916-930-5750.

[1] Housing tax credits cannot be traded for cash. In order for an investor to be allocated housing tax credits, it must be an owner in the partnership that owns the property. The phrase “tax credit pricing” is simply shorthand for the ratio of an investor’s equity commitment to a given property and the housing tax credits it expects to claim.

About TCIS
The Tax Credit Investment Services (TCIS) group is a dedicated business unit within CohnReznick focused on evaluating and advising clients on tax-advantaged investments, including low-income housing, historic rehabilitation, new markets and renewable energy. As a group made up of experts with a fairly narrow industry focus, TCIS covers a variety of consulting areas, including investment due diligence, investment and business strategy, and industry benchmarking research for the benefit of investor and syndicator communities. For more information about TCIS, please visit our webpage.

To contact TCIS, please call 617-648-1400 or write to:
CohnReznick – TCIS
One Boston Place, Suite 500
Boston, MA 02108

Circular 230 Notice: In compliance with U.S. Treasury Regulations, the information included herein (or in any attachment) is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of i) avoiding penalties the IRS and others may impose on the taxpayer or ii) promoting, marketing, or recommending to another party any tax related matters.

This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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